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The Whack-a-Mole Game: Tobin Taxes and Trading Frenzy
[Range-based estimation of stochastic volatility models]

Author

Listed:
  • Jinghan Cai
  • Jibao He
  • Wenxi Jiang
  • Wei Xiong

Abstract

To dampen trading frenzy in the stock market, the Chinese government tripled the stamp tax for stock trading on May 30, 2007. The greatly increased trading cost triggered a migration of the trading frenzy from the stock market to the warrant market, which was not subject to the stamp tax. This migration exacerbated a price bubble in the warrant market. Our analysis of investor account data uncovers not only large inflows of new investors to the warrant market but also greatly intensified trading by existing warrant investors. This episode exemplifies the so-called “whack-a-mole” game in financial regulations.

Suggested Citation

  • Jinghan Cai & Jibao He & Wenxi Jiang & Wei Xiong, 2021. "The Whack-a-Mole Game: Tobin Taxes and Trading Frenzy [Range-based estimation of stochastic volatility models]," The Review of Financial Studies, Society for Financial Studies, vol. 34(12), pages 5723-5755.
    • Handle: RePEc:oup:rfinst:v:34:y:2021:i:12:p:5723-5755.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhaa135
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    Cited by:

    1. An, Li & Lou, Dong & Shi, Donghui, 2022. "Wealth redistribution in bubbles and crashes," Journal of Monetary Economics, Elsevier, vol. 126(C), pages 134-153.

    More about this item

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G40 - Financial Economics - - Behavioral Finance - - - General

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